Thursday, January 3, 2008

NEW YORK (Dow Jones)-- The dollar was strengthening against the euro and yen early Thursday after the release of a key employment indicator, but remains near its overnight ranges.

The ADP National Employment Report for the U.S. private sector increased 40,000 in December, close to economists' expectations, which at first limited the impact of the data on dollar trading.

However, the U.S. currency then climbed against the euro and yen.

As such, currency analysts say the employment number isn't why the dollar strengthened.

"It's preceded in importance by position adjustments ahead of the (Labor Department's) employment report (Friday)," said Alan Ruskin, chief international strategist at RBS Greenwich Capital in New York.

"The market is already short dollars," he said. "The dollar strengthened because people are not willing to add to short dollar positions. The numbers weren't desperately soft."

The ADP report is seen as an indication of what will be in Friday's key non-farm payrolls employment report from the U.S. Labor Department of both the public and private sectors.

However, ADP is considered an unreliable predictor.

Therefore, "the market is cautious reading into this," said Niels From, a currency analyst at Dresdner Kleinwort in Frankfurt.

"Also, the market is also already expecting non-farm payrolls to be on the soft side," said From. "It's more or less already priced into the market."

Early Thursday in New York, the euro was at $1.4716 from $1.4728 late Wednesday. The dollar was at Y109.31 from Y109.47. The euro was at Y160.88 from Y161.21, according to EBS. The U.K. pound was at $1.9757 from $1.9803, and the dollar was quoted at CHF1.1176 from CHF1.1180 late Wednesday.

Also released Thursday, the number of U.S. workers filing new claims for unemployment benefits fell back last week from three-year highs, but ongoing claims spiked again, suggesting some weakening in labor markets.

Initial claims for jobless benefits fell 21,000 to 336,000 after seasonal adjustments in the week ended Dec. 29, the Labor Department said Thursday. Wall Street economists had expected only a 4,000 drop.

Such weak data weighed heavy on the dollar a day earlier.

Wednesday, the U.S. currency lost as much as Y3 at one stage against its Japanese counterpart after the latest Institute of Supply Management manufacturing index fell to 47.7. The consensus was for a little rise to 51.0 from 50.8.

That will keep the low yielding currencies, like the yen and Swiss franc, in demand, said analysts at BNP Paribas. The bullish steepening of the U.S. yield curve and the increasing pace of yuan appreciation against the dollar is also helping.

Broad dollar weakness on international markets overnight helped the yuan rise to a record level against the U.S. unit Thursday. On the over-the-counter market, the dollar ended at CNY7.2725, down from Wednesday's close of CNY7.2934. It traded between CNY7.2721, its lowest level in the modern era, and CNY7.2760.

The "heightened uncertainty" expressed in the Federal Open Markets Committee minutes from Dec. 11 released Wednesday is contributing to the trend, as well as the high price of crude oil near to $100 a barrel.

"Cross selling, particularly against the pound, have also supported the yen amidst ongoing concerns about the U.K. economy," said Brown Brother Harriman analysts.

A survey released overnight by the Bank of England, showed lending to home buyers was "materially" reduced in the fourth quarter of 2007 and a further contraction is expected in the coming months. Continued deterioration in credit conditions for businesses is also expected.